Advertisement
Canada markets open in 3 hours 31 minutes

  • S&P/TSX

    21,708.44
    +52.39 (+0.24%)
     

  • S&P 500

    5,011.12
    -11.09 (-0.22%)
     

  • DOW

    37,775.38
    +22.07 (+0.06%)
     

  • CAD/USD

    0.7269
    +0.0005 (+0.07%)
     

  • CRUDE OIL

    83.18
    +0.45 (+0.54%)
     

  • Bitcoin CAD

    89,217.65
    +4,500.88 (+5.31%)
     

  • CMC Crypto 200

    1,333.02
    +20.40 (+1.58%)
     

  • GOLD FUTURES

    2,399.00
    +1.00 (+0.04%)
     

  • RUSSELL 2000

    1,942.96
    -4.99 (-0.26%)
     

  • 10-Yr Bond

    4.6470
    0.0000 (0.00%)
     

  • NASDAQ futures

    17,439.75
    -107.50 (-0.61%)
     

  • VOLATILITY

    19.48
    +1.48 (+8.22%)
     

  • FTSE

    7,834.50
    -42.55 (-0.54%)
     

  • NIKKEI 225

    37,068.35
    -1,011.35 (-2.66%)
     

  • CAD/EUR

    0.6818
    -0.0003 (-0.04%)
     

World Wrestling Entertainment, Inc.'s (NYSE:WWE) Stock Is Going Strong: Is the Market Following Fundamentals?

Simply Wall St
·4 min read

World Wrestling Entertainment (NYSE:WWE) has had a great run on the share market with its stock up by a significant 28% over the last three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. Particularly, we will be paying attention to World Wrestling Entertainment's ROE today.

Return on equity or ROE is a key measure used to assess how efficiently a company's management is utilizing the company's capital. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

View our latest analysis for World Wrestling Entertainment

How Do You Calculate Return On Equity?

The formula for ROE is:

ADVERTISEMENT

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for World Wrestling Entertainment is:

38% = US$196m ÷ US$517m (Based on the trailing twelve months to December 2022).

The 'return' is the income the business earned over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.38 in profit.

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.

World Wrestling Entertainment's Earnings Growth And 38% ROE

First thing first, we like that World Wrestling Entertainment has an impressive ROE. Additionally, the company's ROE is higher compared to the industry average of 14% which is quite remarkable. Under the circumstances, World Wrestling Entertainment's considerable five year net income growth of 30% was to be expected.

As a next step, we compared World Wrestling Entertainment's net income growth with the industry, and pleasingly, we found that the growth seen by the company is higher than the average industry growth of 17%.

past-earnings-growth
past-earnings-growth

The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you're wondering about World Wrestling Entertainment's's valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

Is World Wrestling Entertainment Using Its Retained Earnings Effectively?

World Wrestling Entertainment has a really low three-year median payout ratio of 25%, meaning that it has the remaining 75% left over to reinvest into its business. So it seems like the management is reinvesting profits heavily to grow its business and this reflects in its earnings growth number.

Besides, World Wrestling Entertainment has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 11% over the next three years. Regardless, the ROE is not expected to change much for the company despite the lower expected payout ratio.

Summary

In total, we are pretty happy with World Wrestling Entertainment's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here